How political and economic turbulence affects Central and Eastern Europe’s...
With no clear end in sight, the devastating war in Ukraine threatens to divide Europe politically and economically. Countries in the Central, Eastern, and South-Eastern Europe (CESEE) region are right in the middle of this divide, but war on the easternmost fringes of Europe is not the only geopolitical issue multinationals across the region must be aware of.Among frequent flare ups of tensions on the Kosovo-Serbia border, peace and stability is once again far from assured in the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia).With all these countries at some stage of EU accession, two regional integration initiatives (the “Berlin Process” and the “Open Balkan”) are in place to improve regional cooperation, including workforce mobility between Western Balkans countries, and prepare them for membership of the bloc.While Serbia, Albania and North Macedonia are full-fledged members of both initiatives, Bosnia and Herzegovina, Montenegro, and Kosovo are still reluctant to formally join, even though they participate in some summits.The agreements already signed within the Open Balkan initiative will unify the labour market for member countries, and remove the requirement for work permits or other formalities.The Open Balkan initiative is particularly supported by the US and its Chamber of Commerce offices in the region, as international companies with regional hubs in Serbia are looking forward to having easier access to labour from neighbouring countries.However, even though the framework agreements were signed more than a year ago, not much has been done to implement them. 2023 is expected to be the year that this is finalised. On the other hand, the EU has been slow to come to decisions on expansion. For example, North Macedonia has been a candidate country since 2005.According to analysis by the International Institute for Middle East and Balkan Studies, the indecisiveness of the EU has strategic consequences in the Western Balkans. In particular, there are real dangers that the uncertainty of the EU enlargement process, combined with local popular pressure, could, after many years of waiting, propel some countries to change their geopolitical orientation. This is particularly concerning at a time when Russia, China, Turkey, and other outside countries are seeking to increase their influence in the region.2023 may therefore be another politically turbulent year in the CESEE. This year’s parliamentary and/or presidential elections in Turkey, Greece, Poland, Montenegro, and Bulgaria could trigger further unrest or instability. And all of this could obviously affect the labour market in the region. Employment shortages driving wage inflation The inflation rate is forecast to remain elevated throughout 2023. Minimum wages have recently increased in most CESEE countries. However, these nominal wage increases do not match the pace of inflation, causing real wages to fall. A predicted economic recession in 2023 is not expected to cause high unemployment, given tight labour market conditions with high vacancy rates.Mass layoffs are expected in technology, media, and telecoms, but mostly impacting companies that overhired during the pandemic. At the same time, deep shortages in particular jobs and professions are expected to drive up wages and stimulate the migration of labour – especially skilled labour – between companies, and even sectors.For example, the Serbian Ministry of Electronic Communications estimates the country needs 30,000 software developers to meet the planned growth demands of many international companies with R&D hubs or service centres.Talent management is becoming a corporate priority as companies struggle to attract, retain and engage workers. Environmental, social, and governance (ESG) issues are taking centre stage in order to attract workers, even at a time when companies are navigating unprecedented energy costs and supply chain disruptions. That’s highly important when employees, especially the “Gen Z”, seek purpose and connection within their work. Employees are becoming more and more interested in internal mobility and career progression opportunities, as well as in diverse forms of work and mobile work possibilities. Also, it is important for employers to do some self-introspection on whether the way they attract talent is truly inclusive, or if employees perceive their leadership style as empathetic. EU emigration continues to hit productivity Workforce shortages are one of the main barriers to growth in the CESEE region. A migration crisis, which has boosted labour supply in Poland and Czechia in particular, has not changed this.A significant part of the EU 2023 Work Programme is focused on facilitating workforce mobility within the bloc and enabling easier access by non-EU nationals to the EU labour market.Given that non-EU countries in the region have struggled for decades with the loss of highly skilled workers to the EU, continued emigration is certain to continue to impact the productivity of non-EU economies. Digital nomad working on the rise Another important trend post-pandemic, and in light of the need to attract skilled labour, is remote working from another country. According to the 2022 Special Eurobarometer on intra-EU labour mobility, almost one-in-five Europeans envisage working outside their own country, and half consider living and working abroad as an important experience with benefits beyond their professional life.Digital nomad visas – which enable foreign citizens to stay and work remotely in their host country for a certain period, usually one year, without paying income taxes or other social contributions in that jurisdiction – are becoming more popular.Several CESEE countries, including Romania, Croatia, Hungary, Czech Republic, Montenegro, and Albania, already issue digital nomad visas. Serbia is planning to adopt relevant regulations this year and North Macedonia is expected to follow soon. More workplace legislation in the pipeline As to other notable legislation in 2023, most EU countries within the CESEE region are planning to implement in full the EU directives on work-life balance and on predictable working conditions.Several countries are also finalising implementation of the Whistleblowing Directive – though Hungary is still falling behind, with no draft laws in place.One novel idea being discussed in Slovenia is a possible shortening of the working week to 30 hours.In Serbia, we finally expect a change in regulation that will introduce a combined residence and work permit and provide a proper legal framework for internships. Article first appeared in January 2023 issued by International Employment Lawyer